All the recent problems at Boeing put CEO Dave Calhoun in the hot seat. Whether he will survive the current turmoil is one question investors need to ponder. Who should succeed him is another.
Pressure on Calhoun is mounting in the aftermath of another MAX crisis. The Federal Aviation Administration capped 737 MAX production at 38 per month after the Jan. 5 in-flight emergency door plug blowout. The production slowdown, and related quality issues, will lead to another year of losses in Boeing’s commercial airplane business, Boeing CFO Brian West warned on Wednesday.
“Regime change now is essential,” AeroDynamic Advisory managing director Richard Aboulafia tells Barron’s.
“Customers and the FAA need [their] pound of flesh,” says Benchmark analyst Josh Sullivan, who is quick to add that doesn’t mean change is coming.
Boeing didn’t respond to a request for comment about succession.
Sullivan’s caveat reflects how Wall Street talks about management succession. Few like to call for someone’s job explicitly. There are reasons for that. For starters, continuing business relationships are at stake.
There is also no easy answer about who is to blame for Boeing’s current woes. Most analysts reference the late 1990s Boeing-McDonnell-Douglas merger when explaining how the company ended up in its current mess. Most analysts also credit Calhoun for returning the 737 MAX to service in Nov. 2020 after its worldwide grounding for almost two years after two deadly crashes within five months.
Calhoun draws his share of criticism too. Boeing continues to bleed single-aisle jet market share to Airbus and has no brand-new model that could stem those losses on the horizon. The larger MAX 10, which better competes with larger A321 model jets, isn’t certified for commercial service. Certification looks years away, frustrating Boeing customers. And there is the door plug mess.
It’s all problematic. Most damning might be the stock’s performance. Boeing shares were about $330 apiece when Calhoun was named CEO at the end of 2019. The stock is off some 40% since then while the S&P 500 is up roughly 60%. While the pandemic makes comparisons involving aviation difficult — Covid-19 hammered demand for air travel — Airbus shares are up about 25% over the same span.
Investors aren’t a very forgiving group, making change a possibility. Three names come up most often when discussing Calhoun’s successors: Larry Culp, Bill Brown, and Patrick Shanahan.
Culp runs General Electric, a dominant supplier of jet engines, and a key Boeing supplier. Culp parachuted into another crisis in 2018 when he took over GE. Wall Street, at the time, questioned the choice wondering if his prior success at Danaher would translate into a different industry. It did — as evidenced by the number of times analysts say “Culp” when asked who could help Boeing.
Culp, however, is busy breaking up GE into GE Aerospace and GE Vernova — the company’s power generation businesses. He will remain CEO of GE Aerospace. Brown, the former CEO of defense giant L3Harris Technologies, is tied up too. He was just named CEO of 3M, replacing current CEO Mike Roman in May.
Of those three, that leaves Shanahan, the current CEO of Boeing supplier Spirit AeroSystems. Spirit also has its quality issues, but Shanahan took over in September. What’s more, Spirit Aero might end up part of Boeing again. The two companies have acknowledged merger talks. Spirit Aero was part of Boeing until it was sold to Canadian private equity firm Onex in 2005.
“Shanahan would be a brilliant choice, and Culp excellent too,” says Aboulafia.
Shanahan has a master’s degree in mechanical engineering and an MBA from MIT. Impressive. Still, he isn’t a universal choice. Shanahan is a Boeing insider, working some three decades at the company before leaving. “What they really need is a true outsider with a pedigree that is not afraid to sort this mess out, even though it will take years,” says Vertical Research Partners analyst Rob Stallard. “Bill Brown would have been ideal…but he went to 3M.”
Predicting leadership changes is never easy. Other names analysts tossed into the mix include several non-Boeing aerospace and defense executives between the ages of 50 and 70.
Benchmark’s Sullivan suggested former Boeing executive and Ford Motor CEO Alan Mulally who is in his late 70s. “Later years…but so are both of our Presidential candidates.”
Change will come eventually. Calhoun has done the job for four-plus years and is turning 67 in April. Investors shouldn’t hold their breath though. “Usually [before] management changes you let all the pain be taken…I’m not sure we’re not there yet,” adds Sullivan.
Finishing a Spirit Aero takeover or seeing the FAA loosen the Boeing 737 production cap are two catalysts that could lead to an announcement. When change comes, Wall Street prefers a relative outsider with manufacturing expertise.
Whoever follows Calhoun faces the difficult task of turning Boeing around.
Write to Al Root at allen.root@dowjones.com